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'\ 2 - " pLEASANTONc City Council Staff Report January 16, 2007 City Attorney SUBJECT: AMENDMENTS TO CITY'S DEFERRED COMPENSATION PLANS STAFF RECOMMENDATION: Adopt the attached resolutions: Resolution Amending City's Qualified Retirement Plan Resolution Amending City's Deferred Compensation Plan SUMMARY: For the benefit of its employees, the City has adopted deferred compensation plans that allow employees to make contributions (out of their salaries) for retirement purposes. One is a "401 Qualified Retirement Plan" and another is a "457 Deferred Compensation Plan". Due to a change in IRS regulations, an employee may rollover contributions from other eligible retirement plans (e.g, individual retirement accounts) to such 401 or 457 plans and thereafter elect to receive a distribution of such rollovers before retirement. In order to permit City employees to have that option, the existing plans need to be amended by Council action. The attached resolutions authorize the plans' amendments for this purpose. Honorable Mayor and Members of the City Council: BACKGROUND In addition to mandatory participation in the Public Employees Retirement System, the City has adopted deferred compensation plans that allow employees to make additional (and entirely voluntary) contributions, out of their salaries, for retirement purposes. (The advantage of this is that those dollars are not taxed until they are distributed.) The City has what is called a 401 Qualified Retirement Plan (so called because it is authorized by Title 26, Section 401 of the Internal Revenue Code) and a 457 Deferred Compensation Plan (Title 26, Section 457 of the Internal Revenue Code). The City acts as a trustee under these plans but incurs no cost; the costs associated with the plans are paid out of the employees' contributions and earnings on Page 1